Leaders of privately held companies are feeling more optimistic about the prospects for economic growth in the wake of the tax reform law, according to a survey released Tuesday by Big Four firm PricewaterhouseCoopers.

PwC’s quarterly Trendsetter Barometer report is the first to be released since the passage of the Tax Cuts and Jobs Act last December. The report for the first quarter of the year found that 83 percent of respondents at private companies are optimistic about prospects for U.S. economic growth during the next 12 months.

“The optimism levels that we’re seeing are very high,” said PwC partner Ken Esch. “We just haven’t seen them since the early 2000s. Our survey participants are very optimistic about the U.S. economy, and it is translating into revenue growth for them. We’re still hanging in at 7 percent-plus expected growth rates for 2018. That’s a strong historical reading, particularly compared to expected growth in GDP. Private companies are probably outperforming the broader economy.”

For the survey, PwC interviewed 300 CEOs and CFOs at privately held companies in the U.S. with average annual revenue of $372 million.

The report found demand for industrial workers on the rise, with 38 percent of private businesses looking to fill blue collar jobs, an increase from 26 percent at the same time last year. The need for professionals remains largely consistent, with 39 percent of companies looking to fill those positions, up from 32 percent in the first quarter of 2017. However, with the unemployment rate down to what economists consider full employment levels, the supply of available talent could be a significant drag on the economy. Nearly half of the private companies surveyed believe a lack of qualified workers represents a barrier to their business growth over the next year, up from 40 percent in the fourth quarter of last year.

“The number of U.S. companies planning to hire has reached 65 percent,” said Esch. “That’s a very high reading historically. They’re expecting to increase headcount in the U.S. by 4.8 percent. That’s contributing to this concern about the lack of qualified workers. That number is leading the pack of concerns by our survey participants. It’s really been more about lack of demand for products and services in the past, but now companies are confident that the demand is there, and that the concern is centered around their ability to attract and retain qualified workers.”


What they'll do with their tax reform windfalls

Planning for the results of reform is at an early stage, with 80 percent of businesses projecting tax savings of an average of 5.16 percent in the wake of the new tax law. Many executives are still assessing how they will deploy the windfalls they anticipate from the tax cuts. Of those with firm plans, early indications are the savings will be spent on increased wages, investments in equipment upgrades and software, among the top beneficiaries.

“The connection with tax reform is just coming into play now, and it will have some benefits to companies and individuals in 2018,” said Esch. “One of the things we found was that 85 percent of our survey participants said they were going to experience at least moderate to significant benefit from tax reform, and they were expecting that their taxes would decrease around 5 percent. We found that the companies were going to use their tax savings for a variety of measures, including things like paying workers more, but they also talked about increasing hiring, increasing some capital expenditures, expanding their business into new markets -- kind of a mixed approach out there as to what they might do with the savings. One of the things we saw around those companies that were planning to increase their investments was 65 percent of the respondents told us they were going to expand business by acquiring another company. Maybe that’s a little bit of an indicator that there’s a connection between tax reform and future M&A types of activities, in addition to things like paying current workers more money.”

How private businesses plan to use tax reform savings

The PwC survey didn’t ask about awarding bonuses to workers as a result of the tax reform, although at least 56 percent of the businesses polled said they planned to use the tax savings to pay their workers more in 2018. The survey did ask the respondents if they thought tax reform would significantly boost revenues in their own business, and they estimated revenue increases of a little over 4 percent due to tax reform.

“At least among our survey participants, there is an expectation that tax reform is going to improve their business generally and will provide them some additional cash flow to reinvest in the business and their people,” said Esch.

The survey didn’t specifically ask about the impact of tariffs, but it did ask about the impact of geopolitical risks on optimism about the economy. Approximately 42 percent anticipate a moderate to strong impact from geopolitical risks, though 35 percent saw limited to no impact.

Another trend is increasing investment in technology at private companies. “We’re continuing to see investment in technology within the business, both customer-facing as well as back-office, and I would expect to continue to see that build,” said Esch.

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